Latest Earnings Release

Stewart Reports First Quarter 2019 Results

HOUSTON, April 25, 2019 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported a net loss attributable to Stewart of $6.8 million ($0.29 per diluted share) for the first quarter 2019, compared to a net loss attributable to Stewart of $3.8 million ($0.16 per diluted share) for the first quarter 2018. Pretax loss before noncontrolling interests for the first quarter 2019 was $7.2 million compared to a pretax loss before noncontrolling interests of $3.3 million for the first quarter 2018.

First quarter 2019 results included:

$3.5 million of net unrealized gains recorded in the title segment relating to changes in fair value of equity securities investments,

$2.0 million of third-party advisory expenses related to the Fidelity National Financial (FNF) merger transaction included in other operating expenses within the ancillary services and corporate segment,

$0.8 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment, and

$0.7 million of office closure costs included in other operating expenses within the title segment.

First quarter 2018 results included:

$2.3 million of third party advisory expenses recorded in other operating expenses in the ancillary services and corporate segment relating to the strategic alternatives review, and

$2.2 million of net unrealized losses recorded in the title segment relating to changes in fair value of equity securities investments.

"In addition to preparing for the spring selling season, we continue to work through the ongoing regulatory approval process for our merger with Fidelity National," stated Matthew W. Morris, chief executive officer. "I remain thankful for the support and professionalism of our associates during the transaction process."

Merger UpdateWith respect to the proposed merger with FNF, we continue to work with FNF to respond to the Second Request of the Federal Trade Commission (FTC). FNF has also filed a new Form A application with the New York State Department of Financial Services, which disapproved a prior application with respect to Stewart Title Insurance Company, our New York domiciled title insurance underwriter. We will continue to respond to the FTC's Second Request and maintain discussions with all other necessary regulatory bodies to seek approval of the proposed merger.

Selected Financial InformationSummary results of operations are as follows (dollars in millions, except per share amounts):

Quarter Ended March 31,

2019

2018

Total revenues

398.5

437.2

Pretax loss before noncontrolling interests

(7.2)

(3.3)

Income tax benefit

2.4

1.3

Net loss attributable to Stewart

(6.8)

(3.8)

Net loss per diluted share attributable to Stewart

(0.29)

(0.16)

Title SegmentSummary results of the title segment are as follows (dollars in millions, except pretax margin):

Quarter Ended March 31,

2019

2018

Change

Total operating revenues

376.1

422.4

(11)%

Investment income and other net gains

8.3

3.0

173%

Pretax (loss) income

(0.4)

5.1

(107)%

Pretax margin

(0.1)%

1.2%

Title operating revenues in the first quarter 2019 decreased compared to the prior year quarter as direct title and independent agency revenues decreased 13 percent and 9 percent, respectively. The segment's overall operating expenses in the first quarter 2019 declined $35.5 million, or 8 percent, compared to the prior year quarter, as combined employee and other operating costs decreased 7 percent and title loss expense decreased 17 percent. Excluding the effects of the changes in fair value of equity securities investments and the 2019 office closure costs, the title segment's pretax loss was $3.3 million in the first quarter 2019, compared to pretax income of $7.3 million in the first quarter 2018.

Direct title revenues information is presented below (dollars in millions):

Quarter Ended March 31,

2019

2018

Change

Non-commercial:

Domestic

107.4

115.7

(7)%

International

15.6

18.2

(14)%

Commercial:

Domestic

33.7

47.5

(29)%

International

4.5

4.1

10%

Total direct title revenues

161.2

185.5

(13)%

Non-commercial domestic revenues, which include revenues from purchase transactions and centralized title operations (primarily processing refinancing and default title orders), declined $8.3 million primarily as a result of a combined 10 percent decline in purchase and refinancing closed orders in the first quarter 2019 compared to the prior year quarter. The reduced orders were influenced by the decline in total home sales and mortgage lending during the first quarter 2019 as compared to the prior year quarter. Total commercial revenues decreased $13.4 million, or 26 percent, primarily due to fewer transactions during the first quarter 2019, compared to the first quarter 2018 which benefited from a few large portfolio transactions and carryover of some opened transactions from the fourth quarter 2017. First quarter 2019 domestic commercial fee per file increased 9 percent to approximately $9,600, primarily due to increased transaction sizes, while domestic residential fee per file increased 7 percent to approximately $2,300 as a result of the mix shift to more purchase transactions and home price appreciation. Total international title revenues decreased $2.2 million, or 10 percent, primarily driven by market conditions in Canada.

Gross revenues from independent agency operations declined in the first quarter 2019, compared to last year's quarter, primarily as a result of reductions in generally high agency volume states of Texas, New Jersey, Utah, Pennsylvania and California, partially offset by a revenue increase in the state of New York. The independent agency remittance rate in the first quarter 2019 was 17.9 percent, which was comparable to the prior year quarter.

Ancillary Services and Corporate SegmentSummary results of the ancillary services and corporate segment are as follows (dollars in millions):

Quarter Ended March 31,

2019

2018

Change

Total revenues

14.1

11.8

19%

Pretax loss

(6.8)

(8.4)

18%

First quarter 2019 segment revenues increased compared to the prior year quarter, primarily due to a $3.1 million revenue increase from search services. Excluding the non-operating charges noted above for the segment, the first quarter 2019 pretax loss would have been $4.0 million, an improvement of $2.1 million, or 34 percent, compared to the prior year quarter. Additionally, the segment's results for the first quarter 2019 and 2018 included approximately $7.5 million and $8.1 million, respectively, of net expenses attributable to parent company and corporate operations (including the non-operating charges).

ExpensesEmployee costs for the first quarter 2019 declined 7 percent to $129.3 million from $138.8 million in the prior year quarter, primarily as a result of the decrease in average employee counts, which was principally related to volume declines in our direct title operations. As a percentage of total operating revenues, employee costs for the first quarter 2019 were 33.1 percent, compared to 32.0 percent in the prior year quarter, due to lower operating revenues in the first quarter 2019.

Other operating expenses for the first quarter 2019 decreased 4 percent to $77.2 million, compared to the first quarter 2018. This decrease was primarily due to the reduced outside search fees, consistent with the lower direct title revenues in the first quarter 2019, and lower professional fee expenses. As a percentage of total operating revenues, other operating expenses for the first quarter 2019 were 19.8 percent compared to 18.5 percent in the prior year quarter. Excluding the non-operating charges discussed above, the other operating expenses ratio in the first quarter 2019 and 2018 would have been 18.9 percent and 18.0 percent, respectively.

Title loss expense for the first quarter 2019 decreased $3.3 million to $15.7 million compared to $19.0 million in the first quarter 2018, primarily due to the Company's favorable claims experience. Title losses, as a percentage of title revenues, were 4.2 percent in the first quarter 2019 compared to 4.5 percent in the prior year quarter. We expect our title losses to remain in the range of 4.0 to 4.2 percent of title revenues for 2019.

OtherNet cash used by operations in the first quarter 2019 increased to $39.9 million, compared to net cash used of $28.9 million in the prior year quarter, primarily due to the higher net loss and increased payments of liabilities during the first quarter 2019.

Other comprehensive income in the first quarter 2019 improved to $13.8 million, compared to other comprehensive loss of $9.8 million in the first quarter 2018, primarily as a result of the net recovery of the market value of our debt securities investments, largely due to decreases in the overall interest rate environment, and favorable foreign currency exchange rate changes during the first quarter 2019.

About StewartStewart Information Services Corporation (NYSE:STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the challenging economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

STEWART INFORMATION SERVICES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands of dollars, except per share amounts and except where noted)

Quarter Ended March 31,

2019

2018

Revenues:

Title revenues:

Direct operations

161,247

185,512

Agency operations

214,863

236,854

Ancillary services

14,282

11,831

Total operating revenues

390,392

434,197

Investment income

4,724

4,704

Investment and other gains (losses) - net

3,403

(1,671)

398,519

437,230

Expenses:

Amounts retained by agencies

176,494

195,207

Employee costs

129,256

138,822

Other operating expenses

77,155

80,267

Title losses and related claims

15,686

18,981

Depreciation and amortization

5,990

6,234

Interest

1,164

974

405,745

440,485

Loss before taxes and noncontrolling interests

(7,226)

(3,255)

Income tax benefit

2,442

1,294

Net loss

(4,784)

(1,961)

Less net income attributable to noncontrolling interests

1,982

1,819

Net loss attributable to Stewart

(6,766)

(3,780)

Net loss per diluted share attributable to Stewart

(0.29)

(0.16)

Diluted average shares outstanding (000)

23,595

23,508

Selected financial information:

Net cash used by operations

(39,883)

(28,926)

Other comprehensive income (loss)

13,761

(9,847)

Monthly Order Counts:

Opened Orders 2019:

Jan

Feb

Mar

Total

Closed Orders 2019:

Jan

Feb

Mar

Total

Commercial

1,572

1,236

1,490

4,298

Commercial

1,312

929

1,263

3,504

Purchase

16,869

16,963

19,715

53,547

Purchase

9,659

10,401

13,258

33,318

Refinancing

7,584

7,032

8,568

23,184

Refinancing

3,900

4,314

5,029

13,243

Other

521

675

395

1,591

Other

361

340

295

996

Total

26,546

25,906

30,168

82,620

Total

15,232

15,984

19,845

51,061

Opened Orders 2018:

Jan

Feb

Mar

Total

Closed Orders 2018:

Jan

Feb

Mar

Total

Commercial (Note 1)

2,649

2,395

2,395

7,439

Commercial (Note 1)

1,696

1,811

1,888

5,395

Purchase

17,023

17,753

21,715

56,491

Purchase

10,855

10,943

14,883

36,681

Refinancing

7,609

7,287

8,236

23,132

Refinancing

5,129

4,538

5,212

14,879

Other

1,107

944

962

3,013

Other

886

900

1,329

3,115

Total

28,388

28,379

33,308

90,075

Total

18,566

18,192

23,312

60,070

Note 1 – Prior year commercial orders were updated to take into account changes to our domestic order tracking process and the exclusion of international orders. Refer to Appendix B for the updated orders information for the years 2018 and 2017.

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)

March 31,2019(Unaudited)

December 31,2018

Assets:

Cash and cash equivalents

164,507

192,067

Short-term investments

23,473

22,950

Investments in debt and equity securities, at fair value

627,648

636,017

Receivables – premiums from agencies

29,421

29,032

Receivables – other

51,299

47,044

Allowance for uncollectible amounts

(4,450)

(4,614)

Property and equipment, net

57,192

60,794

Operating lease assets (Note 2)

103,947

-

Title plants, at cost

74,737

74,737

Goodwill

248,890

248,890

Intangible assets, net of amortization

8,518

9,727

Deferred tax assets

4,575

4,575

Other assets

52,553

51,711

1,442,310

1,372,930

Liabilities:

Notes payable

105,043

108,036

Accounts payable and accrued liabilities

71,621

109,283

Operating lease liabilities (Note 2)

115,307

-

Estimated title losses

454,075

461,560

Deferred tax liabilities

17,360

14,214

763,406

693,093

Stockholders' equity:

Common Stock and additional paid-in capital

187,139

186,714

Retained earnings

500,335

514,248

Accumulated other comprehensive loss

(11,010)

(24,771)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

673,798

673,525

Noncontrolling interests

5,106

6,312

Total stockholders' equity

678,904

679,837

1,442,310

1,372,930

Number of shares outstanding (000)

23,699

23,719

Book value per share

28.65

28.66

Note 2 – Beginning in 2019, we adopted the new lease accounting standard which resulted in the balance sheet recognition of assets and liabilities related to our operating leases of office space. Operating lease assets represent the right to use the underlying assets over the corresponding lease terms. This adoption did not result in any impact to our statements of operations and cash flows.

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)

Quarter Ended:

March 31, 2019

March 31, 2018

Title

AncillaryServicesandCorporate

Consolidated

Title

AncillaryServicesandCorporate

Consolidated

Revenues:

Operating revenues

376,110

14,282

390,392

422,366

11,831

434,197

Investment income

4,724

-

4,724

4,704

-

4,704

Investment and other gains (losses) - net

3,603

(200)

3,403

(1,659)

(12)

(1,671)

384,437

14,082

398,519

425,411

11,819

437,230

Expenses:

Amounts retained by agencies

176,494

-

176,494

195,207

-

195,207

Employee costs

123,056

6,200

129,256

131,604

7,218

138,822

Other operating expenses

64,427

12,728

77,155

69,171

11,096

80,267

Title losses and related claims

15,686

-

15,686

18,981

-

18,981

Depreciation and amortization

5,153

837

5,990

5,317

917

6,234

Interest

6

1,164

1,164

6

968

974

384,816

20,929

405,745

420,286

20,199

440,485

(Loss) income before taxes

(379)

(6,847)

(7,226)

5,125

(8,380)

(3,255)

Appendix AAdjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net investment and other gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net investment and other gains and losses and other non-operating costs such as FNF merger expenses and other third-party advisory costs (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the quarter ended March 31, 2019 and 2018 (dollars in millions).